Concerns over Europe’s financial health have only gotten worse for the past two years as the currency bloc struggles to regain its fiscal footing, which has undoubtedly intensified doubts about the global economic recovery since the most recent downturn. Worrisome headlines from this region have been plaguing investors’ confidence like a parasite, paving the way for choppy trading in equity markets around the world. However, amidst the clouds of uncertainty looming over the eurozone currency bloc shines a light of hope from an often overlooked country; Poland has been flying under the radar for many investors, although it may warrant a closer look given its tremendous resilience and attractive economic outlook in an otherwise gloomy region [see also Euro Free Europe ETFdb Portfolio].
As the sixth-largest economy in the European Union, and one of the fastest growing in the Europe period, Poland has earned a reputation as somewhat of a safe haven in a region dominated by debt drama. By avoiding a financial meltdown on its home front thanks to a young and fairly debt-free credit market, Poland was able to hold its ground and resume growing at a rate upwards of 3% in 2010, while almost all of its neighbors were still suffering from GDP contraction.
With many investors preparing for a eurozone meltdown, the real question at hand is whether any investment overseas is safe. While it’s pretty darn hard to predict the future with accuracy, many experts do agree that Poland is in a much better position than the majority of its neighbors to withstand a sharp economic downturn. A recent WSJ article by Marcin Sobczyk highlights noteworthy commentary from the National Bank of Poland, which said “the ability of banks to absorb any potential losses remains high and the financial system is stable.” The NBP recently projected economic growth of 2.9% in 2012, 2.1% in 2013, and 3.0% in 2014. The NBP has also outlined a worst-case scenario if a meltdown does materialize, in which case Polish banks would need approximately $2.75 billion in additional capital to ensure stability [see also Ex-Europe ETFdb Portfolio].
Ways To Play
For those with a stomach for risk looking to tap into a lucrative opportunity abroad, investing in Poland presents itself as somewhat of a contrarian strategy given the towering list of uncertainties plaguing the eurozone. Currently, ETF investors can access Poland through two funds: the iShares MSCI Poland Investable Market Index Fund (EPOL) and Van Eck’s Market Vectors Poland ETF (PLND).
EPOL has the edge over PLND when it comes to assets under management despite having launched approximately half a year later. On the other hand, PLND takes home the cake when it comes to expenses, although just barely; Van Eck’s offering charges 0.60% in management fees, while EPOL costs 0.61%. One common drawback inherent to both ETFs is their top-heavy portfolio composition, as they each allocate nearly two-thirds of total assets to the top 10 holdings alone [see also 3 Europe ETFs Holding Their Ground In 2012].
From a sector breakdown perspective, EPOL and PLND are nearly identical; financial services, basic materials and utilities are the top three allocations in each fund. Investors would do well digging deeper into the holdings for each fund if they want to identify noteworthy differences between these two seemingly identical ETFs before buying in a position.
Disclosure: No positions at time of writing.
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